January 18, 2010

In Russia, a Bankrupt Town Keeps Humming

Workers were showing up every morning at Baranchinsky’s lone factory, even though many had received their tiny salaries only once in the last 16 months. But then the local utilities cut off the factory’s electricity and heat over unpaid debts. Temperatures were dropping to 15 degrees below zero, and exterior pipes began to burst. A few more days and the factory would be damaged beyond repair.

“I guess they just thought that if they stopped showing up, the factory would close,” she said, with affection. “Some people are just enthusiasts. I wouldn’t do it myself.”

For more than a year, the Kremlin has been scrambling to address the future of places like Baranchinsky, one of Russia’s 300 or so “monocities,” where a single plant supplies heat, income and social security. Many of these factories are hemorrhaging money, leaving leaders with an array of unpalatable choices: To allow factory towns to die gradually, as they did in the 1990s? To liquidate them? Save them?

What happened in Baranchinsky, population 11,000, says much about the consensus Russia reached in 2009. Business did not want to spend money; workers did not want to relocate; the government did not want the political instability that comes with unemployment and was able to pay huge sums to stave it off. This consensus has kept much of Russia in a state of suspension, just when the economy would seem to demand change, said Natalya V. Zubarevich, an analyst at the Moscow-based Independent Institute for Social Policy. “This is a kind of quarantine, in which people simply wait until the end of the crisis,” she said. “The authorities are doing everything they can to support inefficient employment.” As for most people, she added, “they just want things to be the way they were.”

This rhythm has repeated itself since 1763, when Catherine the Great commissioned the factory to make artillery shells. But something changed with the fall of Communism. Defense orders vanished, and as the plant adjusted to the civilian market for electric motors and generators, there were periods when workers were paid in shoes, or not at all. Baranchinsky survived the 1990s, but life had become a roller coaster of good years and bad ones.

People in town blame Pavel Fedulov, a local oligarch who bought the factory in 2001. Mr. Fedulov snapped up dozens of local enterprises, and critics say he milked the factory of profits and invested nothing in its antiquated infrastructure. (Some machine tools were brought back from Germany as booty after World War II, workers said.) The plant was also hampered by age — it still produces its own fittings in an in-house foundry and smithy, a necessity during wartime — and faced rising competition from China and Europe.

And yet, few people have left. A year ago, with the factory near bankruptcy, Ms. Yelpanova stacked her desk with resignation forms, expecting a mass exodus. For a while, it happened; 360 workers out of 1,369 resigned. But by spring, the same people were coming back to ask about vacancies.There are various reasons for this. The obvious place to search for work was Nizhny Tagil, a large city just 25 miles away, but transportation is so difficult that commuters must leave for the train at dawn and return late, something many mothers refused to do. Those who wanted to move found that no one would buy their apartments

…

That day the demise of Baranchinsky’s factory was, if not averted, postponed for the foreseeable future. Its longtime general manager and commercial director, minority shareholders who had been locked in a bitter feud with the majority shareholder, were arrested on fraud charges; the utilities reluctantly agreed to overlook an estimated $14 million in debts and turn the heat and electricity back on. Mr. Misharin said the factory was now state property, since it had been repossessed by a state-owned bank, but he made it clear that a new owner would soon step in.

The news delighted workers. They had long lobbied regional officials to replace Mr. Fedulov and his management team, but always got the same answer: that private property was sacred.

“I believe the difference is that Misharin has the support of the prime minister,” said Eduard V. Sazonov, 70, a deputy director of the factory in Soviet days. “I believe he got precise orders from Putin.”

And so the crisis passed, for the moment. The past year could have forced the closure of scores of small factories in the Urals — many of them outfitted with 19th-century technology — but the state has taken pains to prevent this, said Ms. Zubarevich, the Moscow-based analyst. There was also a ban on layoffs, which could have allowed business to set aside money for improvements. The policies averted social unrest, she said, but they will slow Russia’s recovery and modernization.

“It’s populism,” said Sergei Yermak, who covers economics at Expert Ural, a magazine based in Yekaterinburg, of Mr. Misharin’s visit. “From an economic point of view, he didn’t do anything. What is important for the authorities is just patching up holes and putting a stop to social tension. It’s not even patching an economic hole, but a social one.”

But no one said so that day in Baranchinsky. As the governor’s motorcade set off, life began to return to normal. Women padded through the snow, carrying tin pails of water, as they have for 10 generations. People hauled groceries home on sleds. Yellow light pooled in the windows of log houses, and the sharp smell of wood smoke filled the air.